Time & Materials vs. Fixed-bid Engineering Projects: What to Use When

Picking the wrong type of pricing model for your engineering project can derail your budget, timeline, and team morale.  

If you’re in charge of hiring external engineering support, you’re probably asking yourself: Which approach gives me the most control, flexibility, and value without blowing up my budget? You’re also probably getting pressure from multiple directions—finance wants predictability, engineering wants flexibility, and leadership just wants it done yesterday.  

Whether you’re scoping your first outsourced project or reassessing how you’ve handled them in the past, this guide will help you make a smarter decision. 

What’s the Difference Between Time & Materials and Fixed-bid Contracts?

First, let’s define the two terms.  

Time & materials (T&M) means you pay for the actual time engineers spend and the materials used. Billing is typically hourly.  

Fixed bid means you pay a predetermined amount based on a defined scope, regardless of how long the work takes.  

At DISHER Engineering, we work with both models and can tell you that neither is inherently better. It just comes down to what you need.  

TL;DR: Pros & Cons of Time & Materials vs. Fixed-bid Projects

Criteria	Time & Materials	Fixed Bid
Flexibility	High	Low
Budget Control	Medium (depends on oversight)	High
Risk Distribution	Shared	On vendor
Scope Changes	Easy to accommodate	Requires change orders
Timeline Pressure	Collaborative pacing	Stricter deadlines

When Should You Use a Time & Materials Contract for Engineering Services?

Time & materials contracts are ideal when:  

• The scope isn’t fully defined 
• You expect the project to evolve or pivot 
• Collaboration and iteration are critical 
• You need to get started quickly 

We often recommend T&M (or at least a phased approach) for research and development (R&D) efforts, early product feasibility studies, and iterative design work. Then you can get access to real-time progress, change direction quickly, and avoid the overhead of scoping every detail upfront.  

When Should You Use a Fixed-bid Contract for Engineering Services?

Fixed-bid contracts make sense when: 

• The scope is clearly defined and unlikely to change 
• Budget predictability is a top priority 
• You’ve done similar projects before with known outcomes 

Think of fixed bid as a good fit for production-level documentation, tightly scoped automation projects, or capital equipment installations.  

Which Model Offers the Most Flexibility and Innovation?

T&M wins hands down here.  

Innovation rarely follows a rigid timeline. T&M allows you to test, pivot, and adjust as you learn without being penalized. It creates space for smart iteration without waiting on contract adjustments. It’s not always the case, but we most often see breakthrough ideas emerge when working under a T&M model.  

How Do T&M Contracts Impact Project Cost & Budget Management?

T&M gives you more control, but that can be a double-edged sword. Without active management, budgets can drift quickly. That’s why T&M works best when you have clear communication channels, strong internal project ownership, and regular check-ins and updates.  

At DISHER, we help clients with this by providing transparent tracking and Agile-style progress updates. This keeps everyone aligned without surprises. 

Can Fixed-bid Projects Still Deliver High Quality and Agility?

Yes, but it depends on the vendor you’re working with.  

A good partner will build room for contingency into the fixed bid without padding it unnecessarily. At DISHER, we do this by front-loading scope validation and identifying risks early.  

The biggest risk in fixed bid is scope creep because if your requirements shift midway, costs can spike quickly through change orders. That’s why we coach clients to only use fixed bid when the path forward is clear.  

What We Recommend

We don’t believe that one size fits all. Instead, we guide our clients based on project complexity, level of unknowns, speed of decision-making, and internal bandwidth for oversight.  

If you’re early in development or the project will likely shift, T&M gives you more flexibility. If you’re in execution mode and scope is locked, fixed bid may be the more efficient path.  

Here’s a simple checklist to run through:  

• Do you have a detailed scope? If yes, fixed bid could work.  
• Are there a lot of unknowns? Choose T&M. 
• Do you need to start fast and refine as you go? Choose T&M. 
• Is your leadership demanding a locked budget? Fixed bid may ease those conversations. 
• Can your internal team manage the project closely? T&M can thrive with good oversight. 

If you’re still unsure, you can use a hybrid approach. We often break projects into phases, using T&M for discovery and scoping, then shift to fixed bid for execution. 

We’re Here to Help

If you’re wrestling with the decision, let’s talk it through. We’ll ask the right questions, evaluate your project specifics, and recommend a path that’s right for your situation. 

Reach out today to schedule a consultation.